PSU insurance firms shell out Rs 4,000 crore per year to accident sufferers

vIndianz.com (26 Oct, 2009) — The towering death toll on India’s highways is bleeding money to its insurance firms. This is apparent from the information that public sector general insurance companies have time and again paid out a gigantic Rs 4,000 crore annually since 2007 to settle compensation amounts awarded by the Mot or Accidents Claims Tribunal (MACT).

It is anticipated that the insurance firms had earned a stingy Rs 15 lakh in premium from the policy holders on whose behalf it completed the payouts. This is because the premium for third party insurance policies is tremendously low. For a commercial automobile, it doesn’t exceed Rs 1,500 whereas for private cars it is merely Rs 600.

Actually the public sector insurance firms have curved out Rs 12,000 crore in reimbursement to road accident sufferers throughout the previous three financial years. Besides, this is just the tip of the iceberg as firms resolve only one lakh cases yearly and over 11 lakh claims are still awaiting prior to the MACT. The main share of the general insurance marketplace is with the public sector, with private firms which are fresh entrants, currently controlling 40% of the market.

“Road accident cases remain pending before MACT for nearly a decade before the final order comes. The insurance firms then have to pay the principal amount plus interest on it from the day the claim was filed. It is the interest that forms a major portion of the payout and that hurts the companies,” said Mukesh Thakkar, a senior development official with New India Assurance. MACT commands interest to be compensated at the rate of 9% and it accumulates over the days.

Industry experts held that a few of the insurance firms are becoming so frantic that they have started hiring personal surveyors to advance families of road accident sufferers and encourage them to resolve cases out of court. “It’s a awful condition for the insurance companies as on one hand the compensation claims are bleeding them and on the other, 70% of vehicle owners don’t even purchase insurance policies to include to their coffers,” said Mahendra Durve, president of the All India Institute of Insurance Surveyors.

Almost 40,000 people are killed in road mishaps in India yearly and one and a half lakh are wounded. Most of these cases end up prior to the MACT which commands insurance firms to formulate expenditure under the solatium scheme, introduced by the central government in the year 1989 to deal with the modalities of payment of reimbursement to sufferers of hit-and-run cases.

A greater part of the accidents take place on state highways and entail commercial vehicles. “In the MACT, cases continue for 8 to 10 years on an average with a few even taking up to 14 years to be disposed of. Several sufferers are deprived public who cannot manage to pay for the lawyers’ fees although are strained to shell out a fraction of the payment sum to the advocates who fought their case,” an official said.

Industry experts state that the administration will have to take severe steps to make sure that cases for reimbursement do not get bogged down in the judicial procedure for years. “Insurance firms just cannot meet the expense of thousands of crores in compensation annually,” said Durve. “We would like to see a robust judicial infrastructure that disposes of claims quickly, so that the interest component comes down,” said Thakkar.

The government says that it is taking steps to decrease road accidents. It points out that road safety norms are at present an essential element of design at the development stage of all national highways and expressways.

Amount paid by public sector firms to victims through MACT:

2006-2007 ————- Rs 3,741 crore
2007-2008 ————- Rs 3,865 crore
2008-2009 ————- Rs 3,975 crore

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